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HomeMy WebLinkAbout06/16/1998, C3 - APPROPRIATIONS LIMIT FOR 1998-99 council eo° « - q 8 j acEnaa aEpont I Nb. L43 CITY OF SAN LUIS OBISPO FROM: Bill Statler,Director of Finance Wazg� Prepared By: Carolyn Dominguez,Accounting Manager L' SUBJECT: APPROPRIATIONS LIMIT FOR 1998-99 CAO RECOMMENDATION Adopt a resolution establishing the City's appropriations limit for 1998-99. DISCUSSION Overview Under the Gator Spending-Limitation Initiative(Article J= of the State Constitution) adopted as Proposition 4 in June of 1979 (and subsequently modified by Proposition 111 in June of 1990), the City is required to annually adopt a resolution setting an appropriations limit for the upcoming fiscal year. For 1998-99, it is projected that the City's appropriations subject to limitation will be$14.1 million less than the calculated limit of$30.7 million. Background and Key Concepts The Gann Spending-Limitation Initiative provides for the limitation of state and local government appropriations. As discussed in the following summary of the major provisions of the Gann Initiative and Proposition 111 modifications, the Gann Initiative is actually a limitation on tax revenues rather than a direct limitation on appropriations: ■ Appropriations subject to limitation may not exceed appropriations made in 1978-79 except as adjusted for increases in the cost of living, population and service responsibility transfers. ■ Appropriations financed through service fees (to the degree that they do not exceed the cost of performing the service), grant programs, fines and forfeitures, and other specified "non-tax" sources are not subject to the appropriations limit. Additionally, appropriations for long-tern indebtedness incurred prior to 1978-79, debt service on qualified capital outlays beginning in 1990-91, qualified capital outlays in excess of $100,000, and increased costs as a result of federally-mandated programs are also excluded from the limit. Essentially, with the exception of major capital-related expenditures, all appropriations funded through tax revenues are subject to limitation. ■ For the purpose of identifying "proceeds from taxes" under the Gann Initiative, state subventions which are unrestricted as to their use (such as motor vehicle in-lieu revenues) are considered to be tax sources. Gas tax and transportation development act funds are identified as non-tax sources as their use is restricted by the State. L'•3-I Council Agenda Report-Appropriations Limit for 1998-99 Page 2 ■ Under the original Gann Initiative, all proceeds from taxes received in excess of the appropriations limit were required to be returned through refunds or revisions in tax rates and fee schedules within the next two fiscal years; or voter approval to increase the appropriations limit was required. Proposition 111 provides a one-year carryover feature to determine excess revenues under which refunds can be avoided if in the subsequent year the City is below the limit by the amount of the prior year excess. Any voter approved increase to the appropriations limit is valid for a period not to exceed four years. ■ Originally, the Gann Initiative was self-executing, requiring no formal review; however, Proposition 111 requires that the annual calculation be reviewed as part of the annual financial audit. ■ Major concepts in implementing the Gann Initiative as modified by Proposition 111 include: appropriations funded through tax sources are subject to the limit, not actual expenditures; and any excess of actual tax revenues over the appropriations limit, not actual expenditures or appropriations, are subject to refund. Adjustment Factors The annual adjustment factors for changes in population and cost of living for the appropriations limit calculation must be selected by a recorded vote of the Council, and include the following: ■ Cost of living. Local governments may annually choose either the change in California per capita personal income or the percentage change in their jurisdiction's assessed valuation which is attributable to non-residential new construction. ■ Population. Cities may annually choose either the growth in their city's or the county's population. With the exception of assessed value changes, which would need to be provided by the County, the data needed to calculate the City's appropriation limit is provided by the State Department of Finance, Population Research Unit. The data necessary to calculate the increase in the non- residential assessed valuation is not readily available from the County; therefore, the recommended cost of living factor is California per capita income. When non-residential construction data becomes available from the County, the limit can be recalculated and retroactively adopted if different results are anticipated. For this year's calculation, the County's population growth factor (which exceeded the City's factor) is the recommended adjustment factor. Council Agenda Report-Appropriations Limit for 1998-99 Page 3 Calculation Summary A summary of the City's appropriations limit history is attached. As reflected in this summary, the City's limit for 1998-99 is $30,724,300 calculated as follows: Appropriations 1997-98 Appropriations Limit $28,7249500 Adjustment Factors A. Cost of Living Options 1. Percentage change in non-residential assessed valuation Not available 2. Percentage change in California per capita income 4.15% B. Population Options 1. Percentage change in City population 2.06% 2. Percentage change in County population 2.70% Compound Percentage Factor 6.96% 1998-99 Appropriations Limit 830,724,300 The options highlighted in bold print are the recommended adjustment factors in determining our appropriations limit for 1998-99. FISCAL EMPACT Because tax revenues have not kept pace with changes in population and cost-of--living, and because of the favorable impacts of Proposition 111 in calculating the appropriations limit and in determining appropriations subject to the limit, there is no negative fiscal impact resulting from adoption of the limit for 1998-99. The following summarizes the variance between the City's appropriations limit and our projected appropriations subject to this limit for 1998-99: 1998-99 Estimate Appropriations limit $30,724,300 Estimated appropriations subject to limit 16,716,100 Favorable variance $149008 0 ATTACEMMNTS ■ Resolution adopting the City's appropriations limit for 1998-99 ■ City's appropriations limit history I3-3 RESOLUTION NO. (1998 Series) A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO - ADOPTING THE APPROPRIATIONS LBM AND SELECTING ADJUSTMENT FACTORS.FOR 1998-99 WHEREAS, the voters approved the Gann Spending-Limitation Initiative on November 6. 1979 and Proposition 111 on June 5, 1990, which establish and define annual appropriation limits on state and local government entities; and WHEREAS,regulations provide for the establishment by resolution by the governing body of each local jurisdiction of its appropriations limit and the annual adjustment factors;and WHEREAS,the required computations to determine the estimated appropriations subject to limitation for 1998-99 have been performed by the Department of Finance and are available for public review. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of San Luis Obispo hereby adopts the following appropriations limit and annual adjustment factors for 1998-99: Appropriations Limit, 1997-98 $28,724,500 Cost of Living Factor California Per Capita Income 4.15% Population Factor County Population Growth 2.70% Appropriations Limit, 1998-99 $30,724,300 Upon motion of seconded by and on the following roll call vote: AYES: NOES: ABSENT: L'-3.q Resolution No. (1998 Series) Page Two the foregoing resolution was adopted this day of ' 1998. Mayor Allen Settle ATTEST: City Clerk APPROVED 9"/ ie" i tto ey FINANCIAL AND STA i ISTICAL TABLES APPROPRIATIONS LIMIT HISTORY The Gann spending limit initatrve,which was adopted by the voters on June 6, 1979,creates a restriction on the amount of revenue from tax proceeds which can be appropriated in any fiscal year.Under the provisions of this initiative,a city may not appropriate any proceeds of taxes in excess of its"appropriations limit". If excess funds are received in any one year,they may be carried over into the subsequent year. Any excess fiords remaining after the second year have to be returned to the taxpayers by reducing tax rates or fees,or as an alternative,a majority of the voters may approve an override to increase the limit. The following is a summary of the changes in the City's appropriations limit and appropriations subject to the limit since the effective date of the Gann spending initiative(fiscal 1978-79). In general,the City's appropriations limit can increase annually by compound changes in cost-of-living and population. This summary reflects modifications approved by Proposition 111 in June of 1990,which changed the methodology for determining the appropriations limit as well as the appropriations subject to it Limit Inflation Population Appropriations Appropriations Fiscal Year Base Factor Factor Limit Subject to Limit Variance 1978-79 $8,018,152 1979-80 $8,018,152 10.17% -0.34% 8,803,564 $6,189,680 $2,613,884 1980-81 8,803,564 12.11% 0.52% 9,920,998 5,795,468 4,125,530 1981-82 9,920,998 9.12% 1.03% 10,937,298 8,296,846 2,640,452 1982-83 10,937,298 6.79% 2.59% 11,982,451 8,247,797 3,734,654 1983-84 11,982,451 2.35% 1.42% 12,438,188 9,414,875 3,023,313 1984-85 12,438,188 4.74% 2.13% 13,305,250 10,356,484 2,948,766 1985-86 13,305,250 3.74% 2.04% 14,084,445 11,451,837 2,632,608 1986-87 14,084,445 2.30% 2.97% 14,836,316 13,081,774 1,754,542 Pre-Proposition 111 1987-88 14,836,316 3.04% 0.71% 15,395,880 14,411,701 984,179 1988-89 15,395,880 3.93% 4.10% 16,656,977 15,223,479 1,433,498 1989-90 16,656,977 4.98% 2.93% 17,998,848 16,753,800 1,245,048 Post-Proposition 111 1987-88 14,836,316 3.47% 2.93% 15,800,924 14,411,701 1,389,223 1988-89 15,800,924 4.66% 4.10% 17,215,275 15,223,479 1,991,796 1989-90 17,215,275 5.19% 3.92% 18,818,610 16,691,715 2,126,895 1990-91 18,818,610 4.21% 4.59% 20,511,013 15,005,409 5,505,604 1991-92 20,511,013 4.14% 3.04% 22,009,518 14,911,057 7,098,461 1992-93 22,009,518 -0.64% 1.00% 22,087,343 18,094,926 3,992,417 1993-94 22,087,343 2.72% 1.86% 23,110,100 15,215,044 7,895,056 1994-95 23,110,100 0.71% 1.40% 23,600,000 16,778,400 6,821,600 1995-96 23,600,000 4.72% 1.60% 25,109,300 15,530,800 9,578,500 1996-97 25,109,300 4.67% 2.31% 26,889,000 16,825,500 10,063,500 1997-98 * 26,889,000 4.67% 2.06% 28,724,500 15,457,600 13,266,900 1998-99* 28,724,500 4.15% 2.70% 30,724,300 16,716,100 14,008,200 *Appropriations subject to limit are estimates for these years.